Online terms and conditions, jurisdiction and consumers

Creating online terms and conditions for a global web-based business is a difficult task. Balancing certainty and simplicity with the variety of mandatory laws that can be found across major jurisdictions requires deft drafting and there is still an element of novelty to the use of websites for very high value services. In Soleymani v Nifty Gateway, the Court of Appeal held that the question of whether arbitration and governing law clauses contained in online terms and conditions for an auction house were unfair and not binding due to English consumer rights protections was suitable for full trial.

The case sounded a note of caution for companies considering arbitration in consumer-facing terms of service. Although the validity of the arbitration clause has yet to be decided, Nifty Gateway now faces a trial on whether it is entitled to rely on the arbitration clause to prevent Mr Soleymani from pursuing his claims in the English Courts. For more on that case see here.

Parallel proceedings

Similar issues have now been considered in Chechetkin v Payward Ltd and ors. The claimant, an English domiciled lawyer, incurred losses of over £600,000 trading on the defendant’s crypto-currency trading platform, which he blamed for the losses. Payward commenced arbitral proceedings for a declaration of no liability, referring the dispute to JAMS arbitration seated in San Francisco, the dispute resolution forum specified in its online terms and conditions.

Mr Chechetkin commenced parallel English proceedings seeking repayment of his losses from Payward and arguing that the company was in breach of the Financial Services and Markets Act 2000. Meanwhile the sole arbitrator in the US confirmed her jurisdiction, despite submissions to the contrary made by Mr Chechetkin. She then made a declaratory award that Payward has no liability to Mr Chechetkin and that he must take no further steps in the English court proceedings. Payward sought to enforce that award in the UK under the New York Convention.

In the English proceedings, Mr Chechetkin argued that, because he was a consumer and the contract had a close connection to the UK, it was open to the court to find that the arbitration agreement contained in Payward’s terms and conditions was unfair and should be set aside. Payward responded that the court could not take jurisdiction now that an arbitral award had been made and that in any event Mr Chechetkin was not a consumer as he was a sophisticated financial investor who had opened a Pro account on the platform.

The High Court thus had to decide:

1. Whether Mr Chechetkin was a consumer for the purposes of s.15B of the Civil Jurisdiction and Judgments Act 1982 (CJJA); and
2. Whether the arbitration award deprived the English court of jurisdiction under s.101 of the Arbitration Act 1996 (which provides for the recognition and enforcement of New York Convention awards).

What is a consumer?

Miles J had no difficulty in deciding that Mr Chechetkin was a consumer for the purposes of the contract with Payward. Despite Mr Chechetkin’s experience as a banking lawyer, the contract related to the trading of digital assets, which was objectively outside his trade or profession - the key test under the CJJA. His sophistication, expertise or knowledge was irrelevant for the purposes of the CJJA. In addition, he had only ever described himself as a lawyer in the account opening documents and the fact that he opened a Pro account merely meant he had higher trading limits.

Did the English court have jurisdiction after the arbitral award?

The judge also held that the English court was not deprived of jurisdiction by the existence of the arbitral award. Payward could rely upon the award as a defence to any claim brought in English proceedings, but s.101 of the Arbitration Act did not require mandatory recognition of the award so as to deprive the English court of jurisdiction, as Payward contended.

What now?

The judgment does not determine any of the substantive issues in the case, but it is important in illustrating (again, as in Soleymani v Nifty Gateway) how – under English law – even individuals trading online with large sums are still consumers if acting outside their trade or profession. That makes any attempt to bind consumers to an arbitration process in standard terms and conditions vulnerable to attack as unfair.

Whether the terms in either Chechetkin v Payward or Soleymani v Nifty Gateway will ultimately be held to be unfair remains to be seen. In common with many other consumer-facing companies in the web3 space, the terms of each of Payward and Nifty Gateway contained an arbitration clause prescribing arbitration under the JAMS rules, which contain specific provisions as to the treatment of consumers. Both companies willargue that this reduces any potential unfairness. The companies involved are also likely to argue that it is impractical for them, as online entities facing users across the globe, to offer different forms of dispute resolution to users based on where they live.

For now, the approach of the English courts to upholding domestic consumer rights legislation has meant that both companies have been forced to engage in proceedings outside their contractual choice, in parallel to the arbitration they specified. If they succeed, they may reduce the scope for other consumers to drag international web-based companies into the English courts. Both cases are therefore ones to watch in 2023.